apwu response to issa committee questions

8/7/2019 APWU response to Issa Committee questions

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Cliff "c.J." GuffeyPresident(202) 842-4246

National Executive BoardCliff "C.J.- GuffeyPresident

American Posta' Wor'


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Answers toQuestions for Mr. GuffeyPresidentAmerican Postal Workers Union (APWU)

fromChairman IssaCommittee on Oversight and Government Reform

Hearing on "Are Postal Workforce Costs Sustainable?"

USPS Payments fo r Retiree Health Care: The Grim Future OutlookDollars in billions10 9.89.49.0

8.38.6

7.9 7.7 8.08 7.47.0 7.2

b

4

2

02011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021FisC


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We expect the Postal Service to continue as a vital public service agency funded solelyby postal customers for the foreseeable future. As discussed in more detail below inanswers to other questions, the Postal Service will be able to meet its obligations to fundretiree health benefits in fiscal years 2017 and beyond. However, the USPS needsimmediate and short-term relieffrom the unique and unreasonable requirement that itpre-fund retiree health benefits. In addition, the Postal Service must have access to theexcess funds it has paid into CSRS and FERS even if the retiree health benefits pre-funding requirement is repealed. Those funds are important to the ability of the PostalService to modernize and rationalize its mail processing and retail operations and todevelop new products that will increase revenues and spread costs among more productlines. It would be unfair to postal ratepayers if the overfunding is not corrected andratepayers continue to subsidize the federal government while suffering a degradation ofpostal networks and service because the Service is starved of needed capital.

b. Given the dismal fmancial projections for USPS, do you think it will be able topay $7 billion in 2017 when it claims it cmIDot afford a $7.9 billion payment in2011?

We do not agree that the financial projections for the Postal Service are "dismal." ThePostal Service has shown itselfto be remarkably resilient during the recent very deeprecession. Absent retiree health prefunding payments, it actually showed a profit fromits operations from 2007 through 2010. The artificial imposition ofthe unreasonablerequirement to pre-fund retiree health benefits is responsible for the Postal Service'smassive deficits in recent years.

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Despite the challenge posed by the ongoing decline in First Class mail volume, postalrevenues are projected to stabilize as the economy continues its recovery from therecession. Given the most likely scenario for postal volume, revenue and costs over thenext six years, we believe the Postal Service will be able to meet its funding obligationsfor retiree health benefits in 2017 and beyond.

We observe that the aPM projections in the graph are overstated. The bars from 2017and beyond sum amortized payments of the unfunded liability presumed to remain at theend of 2016 and the "normal cost" assigned for the current workforce. As to theamortized costs, aPM assumes a 40 year stream of $2.785 billion dollars to cover theliability. This is certainly too large. As to trending the "normal cost" aPM used a"stationary workforce" and did not credit the Postal Service plans to reduce its workforce to 400,000 career employees. The 2017 payment will be substantially less than $7billion. And each of the subsequent payments will also be substantially smaller.

Regardless of the actual payment, the Postal Service's best opportunity to meet thefuture payments and its other obligations is to cease the current requirements to continueto overpay FERS, to return FERS and CSRS overpayments, and to rationalizeprefunding of retiree health benefits. With such needed capital, the Postal Service caninvest in more efficient networks and processes and innovative product development -and continue to be the vital and essential service the citizenry and its customers need andexpect.

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c. Would you support a taxpayer subsidy to USPS to fund retiree health care for postalworkers?

The question of a taxpayer "subsidy" for the Postal Service is completely hypothetical atthis time. The Postal Service has overfunded its CSRS and FERS retirement funds.Presumably, before Congress would give any serious consideration to a postal subsidy, itwould restore the Postal Service's own funds to postal use. Although this might,depending on how it is done, "score" as an expenditure by the federal government, itwould in no sense constitute a subsidy of the Postal Service. As matters stand, postalratepayers are subsidizing the federal government. Whether a federal payment to permitthe continuation of universal postal services might be necessary in the distant future ordesirable as a matter of public policy, is so speculative as not to permit reasonablediscussion at this time.

If the question is intended as a philosophical inquiry, we generally would preferlegislative changes that would permit the Postal Service to raise rates to market levelsand that would permit the Postal Service to use its very valuable infrastructure to provideadditional services that would generate revenue for services provided. Such changeswould be preferable to the current law, which artificially limits rates to the ConsumerPrice Index (CPI).

2. Please provide a chart similar to Exhibit G in your testimony for the salary and benefits costper total work hour for APWU employees from 1970-2009. Ifpossible, include the accrualcost of retiree health care benefits for APWU members in these figures and indicate theirinclusion.

We provide two charts below. Please note that while ECI for wages goes back to 1970, ECI for

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E C ~ P r i v a t e Sector ~ _____~ ~ ~ W U - C l e r k S-- .-

compensation only goes back to December 1979, so these charts begin with 1980. For severalreasons, the charts do not include the accrual cost of retiree health care benefits: (1) As weexplain in answer l.b aPM calculations of accrual costs of health care benefits are incorrect. (2)We do not have sufficient information with which to make the calculations correctly. (3) aPMhas not provided any APWU-specific numbers or share of the total costs aPM calculates. (4)The comparator line, Eel-Private Sector, does not include any accrual costs.

Comparison of ECI for Private Sector Workers' Compensation toCompensation perWork Hour for APWU Clerks35030025020015010050o~ # ~ # # ~ ~ ~ ~ , ~ ~ ~ ~ ~ ~

Source APWUNational Payroll Summary Hours (Sept of each year) and March 2011Private sector ECI for compensation is from the Bureau of Labor Statistics for Sept of each year and March 2011ECI for private sector compensation was not calculated prior to December 1979.

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Eel-Private Sector..,./' ,....-_____APWU-BU

-r ------.---

Comparison of ECI for Private Sector Workers' Compensation toCompensation perWork Hour for all APWU Bargaining Unit35030025020015010050o~ ~ ~ ~ ~ ~ , ; ~ ~ " " , ~

Source: APWU-National Payroll Summary Hours (Sept of each year) and March 2011Private sector ECI for compensation is from the Bureau of Labor Statistics for Sept of each year and March 2011ECI for private sector compensation was not calculated prior to December 1979.

As between these two graphs, the graph of Compensation per Work Hour for APWU Clerksgives a better picture of compensation trends, because the effect of the change in mix ofemployees is less. As work hours are reduced, more productive, higher paid hours areretained; and that effect explains much of the change in the all APWU bargaining unit line.The ECI holds employment mix constant, while the APWU lines do no t hold employmentmix constant.

3. How many career employees do you believe USPS currently needs?We observe that the Postal Service has consolidated its facilities and reduced its workforce at arapid rate while productivity has been increasing. Between 1999 and 2010 the postal workforcehas been reduced by 458.5 million workhours. This is the equivalent of removing 259,500 full-time employees from the employment rolls.

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We also observe that the Postal Service is presently paying overtime to some employees. ThePostal service reduced overall work hours by 77.3 million hours, or $1.51 billion in 2010; butstill increased the use of overtime by 17.2 percent compared with 2009. The GIG found that theService paid an additional $419.5 million in overtime due to lower staffing levels. l

Understandably the Service is not replacing employees it will not need in a year; but at thismoment it needs most of the people it now has. This would suggest that the Postal Service is notpresently overstaffed. Attrition is a little ahead of the consolidations, automation andproductivity programs that will eventually lead to a career workforce of about 400,000 in 2020.The Service can't reduce the workforce much quicker without significantly harming serviceperformance. It is our understanding that the Postal Service intends to continue to reduce itsworkforce. It should be noted that if the Postal Service were not cash-starved, it could morequickly deploy changes in technology and networks designed to reduce work hours, while alsodoing more to develop products and improve service.

4. Howmany Area and District offices do you believe are necessary for the efficientoperation ofUSPS?

We do not have sufficient information to suggest how many Area and District Offices thePostal Service needs for efficient operations. Area and District Offices currently play criticalroles in operations, customer service, and even labor relations. Any changes would also resultin changes in the ways customers and employees deal with the Postal Service. Such changesshould be carefully planned and executed. We respectfully suggest that the Committee directthis inquiry to postal management.

1 Source: OIG Audit Report, Overtime Usage, HR-AR-11-003 (March 31, 2011).7


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5. How much excess mail processing capacity do you believe USPS has?

This is a difficult question to answer with specificity because so many factors must beconsidered to detern1ine optimum capacity. For example, the Postal Service may havesufficient capacity in plant A to process the mail from plant B, but could not process the mail inplant A and transport it quickly enough between the plants to meet current delivery standards.In such a case, i t would be hard to characterize the capacity at Plant B as unnecessary. ThePostal Service has published its own strategic plans that include infonnation about its currentand future mail processing capacity needs. In a time of rapid change in mail processingoperations, it is not very meaningful to pick a static number as an "excess" amount of capacity.Evaluation ofmail processing capacity and potential efficiencies is an ongoing process.

We also observe that the Postal Regulatory Commission and the Inspector General of the PostalService have found that 30 workshare discounts exceed the amount that can be justified by theEfficient Component Pricing required by the Postal Accountability and Enhancement Act. 2The Inspector General asserts that 19 of these excess discounts cannot be justified by anystatutory exception to the legal requirement that workshare discounts not exceed costs avoided.Correcting these inefficient discounts would strengthen the Postal Service's financial outlookand return some mail processing activity to the Postal Service from the less efficientconsolidators presently perfonning that work.

2 OIG Audit Report, Workshare Discounts Exceeding Avoided Costs, December 23,2010 ( No. MS-AR11-001)8


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Comparative First Class Letter Mail Rates forDifferent Countries

Country Cost in US$United States Up to 1 oz. (28.3 grams) $0.44Canada Up to 30 grams (1.08 ozs.) $0.61Australia Up to 250 grams (9 ozs.) $0.62Japan Post Up to 25 grams (0.9 ozs.) $0.71German Post Up to 20 grams (0.7 ozs.) $0.78France Up to 250 grams (9 ozs.) $1.07Royal Mail (UK) Up to 100 grams (3.5 ozs.) $0.74Source: Various Posts, April 4, 2011 exchange ratesCost is for sending a letter to a domestic destination that weighs approximately 1 ounce

7. Do you believe that the cost-cuttingmeasures at USPS have sufficientlymirrored the costcutting measures in the mailing industry?

This question seems to assume that Postal Service cost-cutting measures should mirror the cost-cutting measures in the mailing industry. Because the Postal Service is a unique institutionwith its own structure and functions, including the obligation to provide universal service,Postal Service cost cutting cannot and should not be expected to mirror cost cutting by itscustomers.

If the question implies that cost cutting by the Postal Service should be in the same order offinancial magnitude as cost cutting by postal customers, that is an assumption that would be

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difficult to justify as a matter ofbusiness management or economics.The very large over-funding ofCSRS and FERS trust funds by the Postal Service, and theunique and unreasonably rapid pre-funding of retiree health benefits required under currentlaw, have imposed heavy financial burdens on the mailing industry. These burdens areunrelated to the requirements of the industry. They are caused by the fact that mailers aresubsidizing the federal government; they have nothing to do with Postal Service efficiency orcost cutting.

Apart from the fact that the premise of the question is ambiguous, we do not have sufficientinformation about cost-cutting measures in the mailing industry to respond specifically to thisquestion. Postal Service cost-cutting measures have been very aggressive.

8. Do you believe that USPS cost-cuttingmeasures adequately reflect the ideaof shared sacrificeamong all USPS employees?

APWU members have made great saclifices in recent years. From 1999 through 2010, theUSPS reduced annual workhours by 458.5 million workhours. Sixty-seven percent (67%) ofthat total, 308 million workhours, were cut from the APWU bargaining units. That is theequivalent of eliminating 174,306 full time jobs from APWU bargaining units. USPS cost-cutting measures have caused severe disruption to postal operations - and to the lives of postalemployees. Thousands ofAPWU members have been forced to uproot their families, sell theirhomes, and relocate hundreds ofmiles away fiom the communities they have called home. TheAPWU has worked cooperatively with the Postal Service to negotiate a collective bargaining

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agreement that, if ratified, would help address the Postal Service's need to control costs andincrease flexibility.

9. Your organization has actively resisted the consolidation ofmail processing operations toeliminate excess capacity in postal processing facilities. You have acknowledged that theuse, demand and the value of the mail has declined significantly. What is the appropriaterole ofemployee organizations in working with USPS to adapt its operations, facilities, andworkforce to the continuing decline in mail volume?

The APWU has actively resisted the consolidation ofmail processing operations because wequestion the accuracy of the Postal Service's projected cost savings and service impacts. Inmany cases, we have found that cost savings have been over-estimated and that actual potentialcost savings cannot justify the adverse service impacts of the changes under consideration.

The APWU also has been a vocal critic of the Postal Service's plans to close or consolidate itsretail operations. As we showed in proceedings before the Postal Regulatory Commission(Docket No. N2009-1), these closures adversely affect individual postal customers who are leastable to afford alternative services. In many cases, postal customers, community leaders, andelected representatives have strongly opposed post office closures because of the negativeimpacts they have on affected communities. The APWU cannot stop the Postal Service fromclosing or consolidating facilities. Our insistence that decisions to do so be made transparently,with rigorous analysis of their costs and benefits, is not only in the interest of our members, it isin the public interest. No less should be expected of this important public service agency.

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10. The chart above shows the rate of labor unit cost growth at USPS compared to theEmployment Cost Index (which measures private sector labor cost growth). Based on thischart, is it fair to say that compensation at USPS has grown more quickly over the lastdecade. than the private sector? This appears to be particularly true since 2006, correct?

Cumulative Increases in AverageCompensation (Wages and Benefits)

50%

40%

30%

20%

10% + - - - : : . - - ~ ~ - - - - - - - - - - - - - -

0%2001 2002 2003 2004 2005 2006 2007 2008 2009 2010

Source: USPS FY 20) 0 TFP labJe lll; Bureaus of Labor S t a t j ~ t l c s S E ' r i e ~CtU2OJOQOOOOQOOOA

-USPS-Private

The question refers to "labor unit costs." Neither line on the graph tracks labor unit costs.Both lines track compensation. The Postal Service infonns us that USPS FY 2010 TFPTable 14 includes retiree health benefits prefunding. This explains much of the increase inthe slope of the USPS line. As one divides larger payments by fewer work hours, the slopeincreases. The comparative ECI line does not include accrual costs. There is also a changein the mix of employees in the USPS line; but the ECI holds employment mix constant. The

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charts provided in our answer to quest ion 2 provide a more meaningful picture ofcompensation trends. They show that USPS compensation growth has been at about thesame rate as Eel growth over time.

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apwu response to issa committee questions

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